How Europe can find its feet again

Now in its longest recession since World War II, Europe is the world economy's weakest link. But as it achieves financial stability, it must now focus on structural overhaul to spur innovation and worker retraining.

Bythe Monitor's Editorial BoardMay 16, 2013

A worker taps a blast furnace in Duisburg at Europe's largest steel factory, part of Germany's industrial conglomerate ThyssenKrupp AG.

In recent surveys on both sides of the Atlantic, top business executives gave a similar forecast: Europe and the United States are both losing their competitive edge. Of the two economies – which are the largest in the world – Europe is struggling the most to restore its edge.

It’s a struggle the rest of the world cannot ignore.

The Continent is dealing with its longest recession since World War II. Many of its major economies are shrinking, even France. Germany, despite past reforms, had only 0.1 percent growth last quarter, revealing just how much it relies on its neighbors.

The European economy still commands a fifth of the global economy, but it is now its weakest link. Japan and the US are sporting a growth rate of more than 2 percent. Unless Europe can retool its workers, liberate its entrepreneurs, and finance its small businesses, China will reach or pull ahead of it in innovation by 2023, say a majority of European business leaders in a survey done by Accenture consultancy.

While European leaders have been able to stabilize financial markets and start to whittle down government deficits, the hard work of structural reform is still in progress. France, for example, just passed a measure that allows employers more leeway to lay off unneeded employees and encourage worker mobility.

“Just because there is zero growth across Europe doesn’t mean there are not segments of good growth within that,” stated Mark Spelman, strategy chief at Accenture.

A refocus on Europe’s inherent strengths, such as design and engineering, are key. But so is lifting a gloom over the stark economic figures, such as unemployment at a record high of 12.1 percent.

Many European leaders look to the US for optimism. One of their models is Google and its operating approach. Its chief executive, Larry Page, offered advice this week to the high-tech industry that would apply to Europe as well:

“We should be building great things that don’t exist. Being negative is not how we make progress,” he said, adding that his industry has grown because it didn’t see its future as a zero-sum game.

That expansive attitude is what European industry needs right now. The Accenture survey of executives, for example, found business leaders want to end the Continent’s “innovation deficit” with more public funding of research.

The two core countries of the European Union, Germany and France, also need to restore trust in the unified approach of the EU’s 27 member countries. A survey by the Pew Research Center in Washington found French support for the EU dropped from 60 percent last year to 41 percent today. In Germany, 60 percent still support the EU.

“[T]he French and the Germans differ so greatly over the challenges facing their economies that they look as if they live on different continents, not within a single European market,” stated the Pew report.

Europe is not alone in this struggle. A Harvard survey of 7,000 of its alumni in business found 58 percent expect US economic competitiveness to decline.

Americans need to both watch and support Europe as it finds its feet again. The global economy needs every link.